Having debt is a common part of life, but for many, it is a source of shame. Incurring debt happens in various ways, and it affects everyone differently. There are even some instances where debt may have an impact after a person dies.
If you have debt here in Maryland, you may feel reluctant to discuss it with those you love, but that is an impulse you may want to change. If you should unexpectedly pass away, that debt could prevent your heirs from inheriting what you wish, especially if you have not taken any action toward estate planning. Here are some tips for what becomes of your debt after your death and what you can do about it right now to protect those you love.
What could happen
Even if you have debt when you die, some financial assets do not have to go toward that debt. These are typically assets that have a designated beneficiary, like a 401(k) account or life insurance policy . The problem arises if your debt load exceeds the amount of your other assets as courts may liquidate what you owned in order to pay off creditors, leaving your heirs with very little, or at least not as much as you intended.
The good news is that creditors must adhere to a code of conduct when attempting to recoup losses, meaning your family can stop collector calls and request written communication. However, if you and a loved one had a joint credit card or co-signed for one, he or she is liable for that debt when you die. The executor of your estate, whether that person is a family member or someone else, will want to keep this in mind while handling the final matters pertaining to your estate.
Protecting your loved ones by planning ahead
Fortunately, there are steps you can take to help protect those you love. Make sure you know exactly what your debt looks like and be sure that someone in your family does too. It’s also a good idea to pay off as much of your debt as possible and create retirement accounts and life insurance policies that name loved ones as beneficiaries.
One of the best ways to make sure your debt doesn’t impact those you love after you are gone is by working on estate planning. Having your desires mapped out legally will help your heirs at a potentially difficult time. Indeed, an estate plan will enable them to focus on you and your legacy.